Direct Line Insurance has reported a 7.8 per cent rise in first-half profits to £225.1 million despite booking a nine per cent dip in the value of car insurance premiums sold.

First-half profits beat analyst forecasts as lower restructuring costs offset the reduction in motor and household insurance business and an increase in bad weather claims.

Direct Line said it remains on track to reach its full-year target of £1 billion cost savings.

The owner of insurers Churchill and Direct Line said average car insurance prices were two per cent lower in the second quarter and four per cent lower for the six months amid intense competition.

In-force car policies dipped 1.9 per cent to 3.7 million for the six months to June 30 on the same period a year ago.

The value of the group's motor gross premiums dropped nine per cent to £665.4 million (H1 2013: £731.4 million).

In the household insurance market, Direct Line said the value of gross premiums fell five per cent to £216.8 million, while in-force policies dipped 3.4 per cent to 3.6 million which it put down to industry competition.

Direct Line Insurance said winter storms cost the business £64 million in the first six months of 2014, compared to nothing at all the previous year.

The company said its half-year result reflected its underwriting discipline in a competitive market.

Overall the group said its in-force policies fell 4.1 per cent to 17.7 million, mainly due to a fall in travel policies connected to packaged bank and building society accounts which have been branded poor value for money by consumer groups.

Direct Line Insurance, which was spun out of Royal Bank of Scotland in 2012 to meet EU state-aid rules, said while pricing pressures in motor insurance – accounting for 40 per cent of revenue - had eased in the second quarter, it was unclear whether the market had bottomed or if prices will fall again in the second half of 2014.

According to data AA , average car premiums fell 19.3 per cent in the year ending June 30 - the largest 12-month decrease since the AA began compiling figures 20 years ago.

The group notes it is in talks to sell its international division, based in Italy and Germany, in a move which brokers at RBC Capital have valued at £427 million.

Shares in Direct Line rose three per cent in Friday trading, with the group having also announced a special 10 pence dividend, taking the interim dividend to 14.4 pence a share.